A new report from the Public Accounts Committee (PAC) warns that the “temporary” digital services tax (DST) could stay in place longer than planned.

The DST raised £358 million in its first year – 30% more than expected. However, the Treasury acknowledges that it is a “second best” solution until the international community introduces a permanent international tax deal, according to the PAC.

“However, we saw little evidence to support the confidence expressed by the departments in evidence to us that the OECD reforms will be implemented to the current timetable,” the PAC wrote.

MPs on the committee warned that delays to this deal could prompt larger tech companies to circumvent the DST with the “huge resources and expertise at their disposal”. 

The tax charges a 2% levy on the revenues of search engines, social media services and online marketplaces that profit from UK users.

The Chartered Institute of Taxation (CIOT) agreed that the DST risks becoming a permanent part of the UK tax system.

John Cullinane, director of public policy at CIOT, said the fact that the tax still exists represents a “failure”. He continued:

“A revenue tax such as this is a blunt instrument that cannot accurately represent the tax on the profits generated in the UK. It will inevitably over-tax some companies and under-tax others.”

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